Workplace Motivation

In motivating your workforce, social comparisons can be more important than financial incentives. Research by Assistant Professor Ian Larkin of the Harvard Business School, suggests that the most powerful workplace motivator is not financial reward. Key findings of his work include:

• The most powerful workplace motivator is our natural tendency to measure our own performance against the performance of others.
• In the age of social networking, employees are more likely than ever to share salary information with each other. Employers need to keep this fact in mind when designing compensation plans.

"Traditionally, [the field of] economics has held a very rational view of people, and there's a gigantic amount of literature focusing on financial incentives and the idea that simply having financial incentives causes people to work harder," Professor Larkin says. "But my research suggests that in deciding how hard we work and how well we think we're performing, social comparisons matter just as much."

Salaries are getting less and less secret because of social networking. So when it comes to compensation, employers should assume there are no secrets. Larkin points out that "people get upset quickly when they realize that there are large variances in how much other people are paid. Companies need to realize that with the overflow of information these days, paying peers differently is going to affect not only how those people feel but how their colleagues feel as well."

Larkin goes on to argue that paying each employee solely according to his or her performance is actually an inefficient strategy; and it can lead to resentment or even sabotage on the part of employees who believe they are underpaid compared with their colleagues. Thus, a standardized salary scale, combined with non financial incentive programs, may be the best way to motivate employees. "When deciding how much effort to exude, workers not only respond to their own compensation, but also respond to pay relative to their peers as they socially compare." 

Click here for the complete article as published in "Working Knowledge"